38 Studios prompts commerce overhaul

A Sept. 25 report commissioned by Gov. Lincoln Chafee ’75 P’14P’16 suggests Rhode Island’s business climate is in critical condition and recommends a major overhaul to current state organizations relating to commerce and economic development.

The report was conducted by the Rhode Island Public Expenditure Council, an independent, nonprofit think tank and is the latest of a succession of attempts in past decades to reform Rhode Island’s government support for commerce. The “Greenhouse Compact” referendum developed in 1984 by consultant Ira Magaziner ’69 addressed the same problems by suggesting the state invest $250 million in research, job creation and business development. The referendum was widely endorsed by public officials and industry professionals, but voters rejected the ballot initiative by a wide margin.

This most recent assessment of Rhode Island commerce began three months ago in the wake of the collapse of video game development company 38 Studios, Chafee said in a press conference the day the RIPEC report was released.

Chafee appointed RIPEC to research and recommend changes primarily to the Rhode Island Economic Development Corporation, a quasi-public organization that serves as the state’s authority on industrial growth. The corporation approved publicly-funded loans to 38 Studios to enable the company’s relocation from Massachusetts to Rhode Island in 2009. The company’s subsequent bankruptcy is now projected to cost taxpayers $102 million, according to the RIPEC report.

RIPEC’s research – which included hundreds of interviews with public officials, industry professionals and private organizations – revealed the EDC’s reputation to be “so tarnished” and “toxic” after the losses from 38 Studios that recommendations from the final report include changing its name to the “Rhode Island Commerce Corporation,” RIPEC executive director John Simmons said on WPRI-12’s “Executive Suite” the day after the report’s release.

Apart from the 38 Studios bankruptcy, RIPEC found that the EDC suffers from lack of staff and funding to efficiently manage its wide directive umbrella. The organization’s reach spans to include business development for tourism, marketing, international trade and policy research.

RIPEC also recommended the creation of a new cabinet position, the state Secretary of Commerce, who would oversee the Department of Labor and Training, Department of Business Relations and Department of Environmental Management. The secretary would also chair a new commerce board monitoring and reporting on RICC activities.

“We found that nothing in state government is really promoting commerce,” Simmons said at the press conference, adding that Rhode Island has no overall plan for economic development. This lack of specialized government interest in commerce puts Rhode Island at a major economic disadvantage compared to other states. “We’re 50th in some of the rankings,” he said.

“I’m not naÃ¯ve about the challenges we have,” Chafee said after RIPEC released the report. He added that he would not comment on the report until he has had time to “digest it all.”

RIPEC recommends legislators produce a packet by January detailing what proposals in the report will be implemented and form a committee composed of “a broad number of stakeholders” to develop a state economic development plan.

Former RIPEC and EDC directors have promoted private sector institutions and universities as resources for assessing and improving the state’s economic conditions. University researchers can provide “competent analysis of the state’s economic conditions (and) market-based reality checks for public policy and investments,” said Marcel Valois, former executive director of the EDC and current vice president of the Economic Development Foundation for Rhode Island. He added that universities all over the country provide these services and can advise state governments to “better integrate into the broader regional economy.”

Simmons has also emphasized the importance of cooperation between the state and private sector allies in ensuring Rhode Island’s future economic success. If RIPEC’s plan is enacted, he said, “the government will serve as a partner, not a barrier, to businesses and will promote long-term, sustainable growth.”